One of the most powerful things to do when researching investments is to perform some grassroots research about the consumer experience. If you're deciding between retail investments, all the ratios and financials are important, but it's also useful to walk into the stores and talk to the people who shop there: Why is it their favorite store? Why do they spend money there and continue to come back? Finding a business that really connects with the consumer can lead to finding a big-time winner in the stock market.
That's what makes J.D. Power's 2015 U.S. Sales Satisfaction Index (SSI) study powerful for investors in auto manufacturers. Here's what you need to know about it.
What does the study measure?
J.D. Power's SSI study measures satisfaction with the sales experience among new-vehicle buyers and rejecters, the latter being those who shop at a dealership but decide to purchase elsewhere. The study is in its 29th year and gives investors powerful information at the ground level, where purchase decisions are made and revenues generated.
Here's the breakdown of how it's scored, according to J.D. Power:
Buyer satisfaction is based on four factors: working out the deal (17%); salesperson (13%); delivery process (11%); and facility (10%). Rejecter satisfaction is based on five factors: salesperson (21%); fairness of price (8%); experience negotiating (8%); facility (7%); and variety of inventory (7%). Satisfaction is calculated on a 1,000-point scale. Overall sales satisfaction improves to 688 in 2015 from 686 in 2014.
Here's a look at how Ford Motor Company (F 1.66%), General Motors (GM 1.46%), and Fiat Chrysler Automobiles (FCAU +0.00%) stacked up compared to one another, as well as to import brands.
Image source: J.D. Power 2015 U.S. Sales Satisfaction Index Study.
Winners and losers
Right off the bat, investors in GM will notice that its brands occupy three of the top four spots and really had some distance between the next tier of brands. GM's fourth brand, Cadillac, which isn't shown on this graphic, scored 738 and was just ahead of the luxury brand average of 732.
Ford checked in well above Japanese competitors Honda and Toyota, as well as seven points above the mass market brand average. However, Ford's struggling Lincoln brand checked in with a score of 731, which was just under the luxury average.
Unfortunately for FCA investors, placing near the bottom of these types of studies has become a consistent theme over the years, and 2015 is no different. Dodge and Jeep took the last two spots in the survey, and Jeep wasn't even within 10 points of Mitsubishi, which has decided to close its lone assembly plant in the U.S. market. Chrysler and Ram fared a little better but still checked in 15 and 17 points under the mass-market average score, respectively.
The silver lining here for FCA investors is twofold. First, it's encouraging that Fiat placed eight points higher than the mass-market average, because perhaps management can take some of that brand's successful procedures and export them to the struggling Chrysler, Ram, Dodge, and Jeep brands. Furthermore, despite a dead-last showing in J.D. Power's SSI study, the brand's sales are still red-hot: Jeep is selling its SUVs at an extremely high level and has recorded 25 consecutive months of year-over-year sales gains.
As more and more millennials enter into the vehicle purchasing equation, it's clear that my generation is looking to see dealerships that can deliver the tech-savvy environment and up-to-date information we find in many aspects of our life. In fact, J.D. Power noted that dealerships that had salespeople using tablets for vehicle and sales information scored 43 points higher on average than dealerships that didn't.
Expect dealerships to continue focusing on technology to improve the car-buying experience, as well as pushing some of the dealership buying process online, enabling consumers to spend less time at the dealership. The automakers that can accomplish this over the near term will be better positioned to gain market share in the highly profitable U.S. market.
